USD/JPY Review: Oversold JPY may have cheered BOJ’s routine QE adjustment

• USD/JPY is flashing red, courtesy of overbought conditions. The technical charts are showing early signs of a bearish reversal.
• BOJ trimmed JGB purchases at regulator operation. The oversold JPY may have picked up a bid on routine QE adjustment.

Currently, the USD/JPY is trading at 112.75, having hit a session high of 112.88 and low of 112.65 earlier today.

The currency pair’s retreat from the six-month high of 113.14 could be associated with the overbought conditions and signs of bullish exhaustion, as shown by the relative strength index (RSI) and yesterday’s doji candle.

Further, the Bank of Japan’s (BOJ) decision to reduce purchases of JGBs maturing in 25-40 years by JPY 10 billion. The central bank has always maintained that these adjustments do not qualify as a policy change and hence markets usually do not respond to routine QE adjustments.

However, today’s QE adjustment may have weighed over the USD/JPY pair as the oversold JPY has been looking for reasons to regain some poise.    

Looking ahead, the pair could suffer a deeper pullback, courtesy of a bearish price-relative strength index (RSI) divergence on the 4-hour chart and falling tops formation on the hourly chart

Hourly chart

Spot Rate: 112.75

Daily High: 112.88

Daily Low: 112.65

Trend: Bearish

Resistance

R1: 113.00 (psychological hurdle)

R2: 113.27/28 (200-week MA + 61.8 percent Fib of 2017-18 slide)

R3:  114.74 *(November 2017 high)

Support

S1: 112.60 (5-day moving average)

S2: 111.99 (10-day moving average)

S3: 111.40 (May 21 high)